United Continental Holdings Inc (UAL), Alaska Air Group, Inc. (ALK): Skies Clearing for Hawaiian Holdings, Inc. (HA)

Alaska Air Group, Inc. (NYSE:ALK) and Allegiant Travel Company (NASDAQ:ALGT), two domestic competitors who recently have expanded rapidly in the Hawaii market, have both admitted that they expanded a bit too much. Alaska’s management has stated that they put too much capacity in the California-Hawaii market, which they have now reversed. Meanwhile, Allegiant Travel Company (NASDAQ:ALGT) decided to radically scale back its off-season capacity to Hawaii, operating most routes only during the peak travel season.

Both Alaska Air Group, Inc. (NYSE:ALK) and Allegiant Travel Company (NASDAQ:ALGT) have a proven history of reacting quickly when markets are not performing up to their goals. Thus, these capacity cuts are likely to stick as long as the U.S.-Hawaii market is adequately served. With capacity growth reversing in the second half of the year, Hawaiian Holdings, Inc. (NASDAQ:HA) Airlines should be able to return to unit revenue growth in the U.S.-Hawaii market.

Clear skies ahead?
Hawaiian has missed out on the recent airline stock rally because of concerns about its profitability. However, in Japan the company has taken actions to mitigate the yen’s decline, while industry capacity is shrinking in the U.S.-Hawaii market. These factors should improve pricing, allowing Hawaiian to return to profit growth soon. The company has many further growth opportunities as well, but still trades at a rock bottom valuation. These considerations make Hawaiian the most compelling stock in the airline sector today.

The article Skies Clearing for Hawaiian Airlines originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Motley Fool contributor Adam Levine-Weinberg owns shares of Hawaiian Holdings, is long Oct 2013 $6 Calls on Hawaiian Holdings, and is short shares of United Continental Holdings (NYSE:UAL) and is long Sep 2013 $33 Puts on United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned.

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